Yunus, who is now in his 70s, founded Grameen Bank three decades ago in an effort to alleviate poverty. He was forced out as managing director last year after Bangladesh's central bank, the financial regulatory authority in the South Asian nation, said Yunus had to end his service at age 60 and that holding his position at 70 was illegal.

Yunus unsuccessfully challenged the central bank's decision in court.

As a result of their work, Yunus and Grameen Bank won the Nobel Peace Prize in 2006. He was also awarded the American Presidential Medal of Freedom and a U.S. Congressional Gold Medal.

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The Grameen Bank model was replicated in many parts of the world as its work drew increasing attention to microcredit, a then-novel idea of making small loans to poor people who would not qualify for standard bank loans.

The Cabinet on Thursday also approved a draft law reducing the power of Grameen's board and allowing its government-nominated chairman to appoint the bank's managing director.

It also directed the Bangladesh central bank and the Financial Institutions Division to report on how much money Yunus made in salaries and allowances while head of the bank after he turned 60, Bhuiyan said.

Yunus immediately expressed deep shock at the decision.

In a statement, he said he had always worried the government would take over the bank.

"Now my apprehension has started to become a reality. I am so disheartened that I am unable to express my feelings," said Yunus.

During a visit to Dhaka earlier this year, U.S. Secretary of State Hillary Clinton angered the government when she said she hoped the work of Grameen Bank and Yunus would not be undermined by government actions.

Finance Minister A.M.A. Muhith at the time said the government, which owns a 25% stake in Grameen, had not taken any action against the bank and that the bank was performing well without Yunus.

Yunus' supporters say he was under fire for criticizing politicians and trying to form his own political party five years ago during an interim, unelected, military-backed government. That party was later abandoned.